THE NEW FINANCE MUDDLE.
CONGRATULATIONS are due to Mr. R. D. Holt and to those of his Liberal colleagues who stood by him for their part in securing the drastic modification of Mr. Lloyd George's Budget which was announced on Monday. They took the lead in emphasizing the unconstitutional character of the proposal to raise money for purposes of expenditure not yet sanctioned by Parliament, and some of them, including Mr. Holt himself, had the courage to carry their protest to the point of putting down amend- ments to the second reading of the Finance Bill. "The rest they ran away," as almost invariably happens when a political" cave " is formed. Foreseeing this more or less wholesale flight, it is probable that the Cabinet would not have yielded had it not been for the strong attitude taken up by the Speaker. One of the most important duties of the Speaker of the House of Commons, as Mr. Gibson Bowles has pointed out, is to see that the rules of the House, designed to protect the taxpayer and to preserve the control of Parliament over the Executive Government, are scrupulously observed. In the execution of this duty Mr. Lowther ruled that the Finance Bill was irregular, because the clauses providing for the allocation of grants to local authorities had not been covered by a resolution in Committee of Ways and Means. There were also other irregularities, to which it is not necessary at the moment to refer. Dealing with the question whether these irregularities were such as to destroy the Bill altogether, Mr. Lowtherdecided that he ought to be guided by the precedent set by Mr. Speaker Peel in 1894, who then ruled that similar irregularities, which had been brought before the attention
of the House by Mr. Gibson Bowles, could be remedied without the withdrawal of the Bill. Mr. Lowther, how- ever, added significantly that in his judgment "it would be desirable if possible to return to the older practice of confining the Finance Bill to the imposition of taxes and arrangements for dealing with the National Debt, and so forth.' Mr. Lloyd George was, by accident or design, absent from the House while the Speaker was delivering this important ruling and significant rebuke. Still more interesting is the fact that the Chancellor of the Exchequer delegated to another Minister the duty of describing to the House the new arrangement which the Government pro- posed to make in order to correct the irregularities from which their Finance Bill suffered. Briefly, the arrangement is that, as soon as the present Finance Bill has been read a second time, the Government will move that it be divided into two parts, one of which will be the Finance Bill proper, in the sense of the Speaker's words above quoted, and the other will be a Bill for dealing specifically with the local grants. In addition, of course, there will remain the Revenue Bill, which has already been introduced, and is, for its size, one of the most complicated and intricate measures ever submitted to Parliament. That there should be three Bills dealing with the finance of the year in one Session of Parliament shows how complicated our financial system is becoming, partly in consequence of the Parlia- ment Act, and partly in consequence of Mr. Lloyd George's peculiar financial methods.
But the changes to be made in consequence of the Speaker's ruling and of Mr. Holt's revolt extend far beyond the mere technical point of the division of the Finance Bill into two parts. The essential features of Mr. Lloyd George's rebuff are the abandonment of the proposed grant to local authorities in the current year, and the reduction of Income Tax by an amount estimated to be equivalent to the grant which would have been paid to the local authorities. This means, in effect, the destruction of the central idea of the Budget of 1914. To understand what has happened it is necessary to go back to a speech which Mr. Lloyd George delivered in Glasgow in February last. Great expectations attached to this speech before it was delivered. It had been repeatedly postponed, and a well-authenticated rumour got abroad that the postpone- ments were due to the reluctance of the Chancellor of the Exchequer to concede the demands of the Single Taxers, who are a powerful and well-organized body in Glasgow. At last the speech came off, and as soon as it had been delivered everyone understood that the Single Taxers had won, and that the Government were committed to their policy. But the same reasons which had made the Cabinet reluctant to commit themselves to the policy of rating site values equally made it necessary to find some device for rendering this folly palatable to the general body of voters. Mr. Lloyd George, more 8440, proposed to get over the difficulty by bribing the local authorities. The move was extremely astute, for not only do the local authorities command considerable voting power, but they have a very direct influence on the Unionist Party. Unionists have for several years past made a special point of championing the wrongs of the local ratepayer, and consequently Mr. Lloyd George, by proposing to give a large additional grant for the professed benefit of the local ratepayer, was virtually silencing his official opponents. The success of his manceuvre was seen in the failure of the Unionists to put down any amendment to the second reading of the Finance BilL As soon as the bribe was dropped Unionists became free to attack the Bill on its merits. Thus a peculiarly well designed piece of political strategy was completely frus- trated, largely by the patriotic action taken by Mr. Holt and his allies.
At the same time, it would be a mistake to imagine that the purpose which Mr. Lloyd George had in view has yet been abandoned. Whether willingly or unwillingly, he has been committed to the policy of the Single Taxers, and will doubtless continue to strive to give effect to that policy: He has, indeed, had the courage to say that it is quite impossible to place all local rates on site values—a proposition which is fairly obvious to people who pause to reflect that the site values of the country, even if taxed 20s. in the pound, would probably not yield a quarter of the amount now raised by local rates. But practical con- siderations of this sort have no effect on the enthusiasts who are responsible for the Single Tax movement, and who believe that their policy, however much it may disregard elementary principles of justice and elementary rules of arithmetic, is destined to remove all the troubles from which humanity suffers. It is difficult to argue with such people, and the members of the Cabinet have evidently found it easier to give way to them.
Other causes have doubtless contributed to this sur- render. In particular, there is the necessity of doing something to justify the existence of the huge Valuation Department which has grown up under the Budget of 1909. This Department is now costing, according to the estimates for the present year. £844,000, but the revenue estimated to be collected by the Department for the three Land Value Duties is only X4.18,000, of which no less than X150,000 is for arrears. If such figures as these had been presented to the House of Commons in 1909, even that obedient body would have hesitated to pass the Land Value Duties. Every. Minister who then defended those duties declared his belief that after a couple of years they would be yielding a large net revenue, and the Prime Minister said emphatically that if they did not yield revenue they ought to be excised. Mr. Asquith has apparently either forgotten this explicit declaration, or finds it inconvenient to give effect to it. The result is that the country is saddled with an enormously expensive Department that is worrying owners and occupiers of property throughout the kingdom, and has no prospect of ever raking in enough revenue to pay for the cost of collection. Therefore, to prevent the unpleasantness of dismissing four or five thousand valuers who have been brought into this Department, and the still greater un- pleasantness of confessing that he was wrong, Mr. Lloyd George feels it necessary to invent a new use for his Valuation Department. That new use is to value all the land of the country for rating purposes on the principle of separating the value of the site from the value of the buildings or other improvements attached to it. This new task will, of course, involve an additional expenditure which for the present year is estimated at the comparatively modest sum of £80,000, but it is hardly necessary to point out that, if the Depart- ment is to do the work now sketched out for it, the additional cost involved will more likely be ten times this figure
Mr. Harper, who is now at the head of the Department, expressed before the Departmental Committee a belief that the values already ascertained for the purposes of the Land Value Duties could be adapted to rating purposes with a little calculation. That is a grotesque absurdity, The values ascertained for the Land Value Duties are, in the first place, capital values, and in many eases it would be quite unfair to deduce by calculation annual value from a recorded capital value. There are certain properties where the annual value might be only three per cent, on the capital value, and others where it might be ten or even twenty per cent. In the second place, the values recorded by the Land Valuation Department are the values which were supposed to be in existence on April 30th, 1909, and these are no longer the values in existence to-day. Thirdly, all the values which the Land Valuation Department has at present ascertained, or professed to ascertain, were arrived at for patticular purposes, and both the valuers and the taxpayers had these purposes in view when the valuations were being made and agreed upon. For example, in a valuation for Increment Value Duty the valuer's main concern would be to get the best yield of duty he could, while the taxpayer would, on the contrary, make such deductions as he thought would reduce the charge upon him. Neither party would be contemplating such a valua- tion as local Assessment Committees hare to contemplate when they are aiming at an equitable distribution of burdens between all the ratepayers of a particular parish. All these points are illustrated with a wealth of practical detail in an admirable little pamphlet compiled by a body of surveyors.* Anyone who will read this pamphlet will be convinced that it is absolutely impracticable to utilize for , the purposes of local rating any of the valuations hitherto made by the Land Valuation Department. The whole work of that Department has been proved to_ be useless
• Long Rating: Memorandum on the Proposal of eh. Deparhaentat Committee on laud Mangum tlat the Assesemenle far Loml Mass should be Made by this Valuation Staff of IAA inland Ilesenue Deparhmt. Compiled by a Body 05 Surveyors. London: P. S. King and Son. 165.3
few any practical purpose whatever. What Mr. Lloyd George now proposes to do is to give the Department a new lease of life at a vastly increased cost to the tax- payers. This is the worst feature of all his financial proposals, and it is upon this that opposition should be concentrated.
It is important to add that one result of the changes made in the Budget is to create great confusion in the City. Banks and public companies have already deducted Income Tax from dividends at the rate of Is. 4d., the rate Sanctioned by the resolution of the House of Commons in Committee of Ways and Means. If that resolution is now to be set aside and the rate fixed at is. 3d. all the calculations will have to be made over again, and great trouble and expense will have to be incurred to make the necessary readjustments. The whole of this inconvenience would have been avoided if Parliament had accepted in its entirety the judgment of the Courts in the ease brought by Mr. Gibson Bowles to recover Income Tax deducted before the Finance Bill had passed into law. Instead of accepting this judgment, which embodied a sound Constitu- tional principle, the two Front Benches joined together to pass the "Bowles Bill" to upset the " Bowles judgment," and the present muddle is the direct result of this sacrifice of Constitutional principles to party convenience.
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